One Year Later: How Demonetization Has Impacted India
This month marks the first anniversary of demonetization in India, and it has undoubtedly changed the country forever. When I visit India, I increasingly see micro-transactions conducted via mobile phones. Cash is still used, but I see less and less of it with each visit. We are in the middle of a true paradigm shift – and India is poised to become a global leader in new types of payment acceptance.
Mixed results following demonetization
From a macroeconomic perspective, reports have indicated that the early stages of demonetization have produced mixed results:
- 90% of cash that was in circulation has been returned to the banking system. This (cash) can be loaned out and increase the GDP to burgeoning entrepreneurs.
- More taxes are collected due to higher bank balances, which can lead to a decrease in the tax rate, spurring economic spending.
- Farming and automotive experienced adverse impacts due to a lack of available cash.
Impact of demonetization on payments
Now focusing on payments, the data available supports what I have seen firsthand. The government had set an ambitious target of 25 billion cashless transactions in 2017. While this may not be reached, digital payment transactions are up 53% in terms of value, and up 33% in terms of volume, with volume growing at a rate of 7% each month.
Reserve Bank of India statistics show that the growth in digital payments was uneven. UPI (Unified Payments Interface) grew at a compounded monthly rate of over 100% in the first 6 months following demonetization. Comparing monthly volume in July 2016 and 2017, mobile banking volumes grew at a CAGR of 75%, and IMPS (Immediate Mobile Payments System) grew at 115%. Clearly staggering growth in volume and rapid adoption of these new digital payments.
Card-based payments, by comparison, grew meagerly at less than 5% in the first 6 months. Admittedly, the card payments base dwarfs that of new payment types such as UPI and IMPS, but this gives us a glimpse of what the future may hold.
New payment infrastructure and the network effect
The IMPS and the UPI protocols support instant payments using mobile phones. The early results indicate that the regulation was a catalyst for significant growth of non-traditional digital payments. New payment applications, such as the Bharat Interface for Money (BHIM), have been built on this new infrastructure.
A significant barrier to overcome for new payment types is the lack of a network of consumers, banks, intermediaries and retailers needed to use and accept the new method. However, BHIM has been designed to be different and overcome these network challenges. It eliminates the need for bank applications and intermediary transfers, while allowing anyone with a bank account and smartphone to make a payment. BHIM also allows users with Aadhaar cards to make payments to others with an Aadhaar number. This effectively opens the marketplace to millions of new Aadhaar-enabled bank accounts. Out on the streets, I have witnessed more and more merchants accepting this method of payment. My eyes are not lying – and the network of retailers needed for a new payment type to be successful is growing.
The future of payments in India
India, much like the rest of the world, is facing several ‘mega trends’ in the payments market. Those that will have the most significant impact in India include the shift from customer experience to engagement, trust in digital transactions and new technologies, as well as the longitudinal trend of the blurred lines between commerce and payments.
I will explore these trends in a future post and outline what they mean for India, but I will close by posing a final question: Has demonetization and the new digital infrastructure positioned India as a leader in digital payments?
Given the growing demand and sheer volume of people using these new digital platforms within just one year, it would not surprise me in the least if India emerged as the benchmark for digital payments.
Related blog posts
Beyond the Bargains: How China Singles Day Became Unstoppable
Another year, another China Singles Day. After the clock struck midnight and November 11th got underway, the records fell fast – and frequently – with sales eventually reaching USD $25.3 billion. This represents a 39% rise over 2016, which was in turn 24.4% higher than 2015. The growth trend is as predictable as it is impressive.
The Seasons Are Changing (And So Are Fraud and Regulations)
If you smell the air, you can sense the seasons changing; a little crispy cold moving in suddenly, the leaves are reddening and the winds of Faster Payments and PSD2 are kicking up. Smooth transition, right? So, yeah, seasons change, and so do regulatory regimes. In the US, we’ve been largely left to our own discretions about how to run our fraud shops, with some regulatory oversight regarding disputes handling. Historically, financial institution processes around authentication and fraud monitoring (including analytics and strategy) could be anything or nothing, depending on an institution’s risk appetite. Like the seasons, this might be in transition.
Dumbing Down Payments and Fintech Jargon… Just in Time for the Holidays!
Mark, is there a slightly less insulting phrase for “dumbing down” something? I ask because there are some terms and topics making bigly waves today and many/most consumers outside of payments/banking/fintech/tech might not understand their significance and why they should care. With that, can we take a moment to simplify these terms and topics, while also conveying their importance to the masses—from your mother-in-law to your daughter’s daycare provider to “the old man sitting next to me making love to his tonic and gin” (I’m a sucker for Billy Joel).
The Art of Open Banking, Part 2: On the March
In the first part of my talk with @digitalbankguru (aka Mark Ranta) and @Lui_Zurawski (aka Lu Zurawski), we discussed plans that best prepare an organization for Open Banking, and in this second chapter, we explore some use cases for delivering value.
What Makes Latin America An Attractive Market for Cryptocurrencies? [¿Qué Hace a Latinoamérica un Mercado Atractivo para Las Criptomonedas?]
Cryptocurrencies are one of today’s hottest topics – seemingly in every corner of the globe. Bitcoin continues to be the most popular – and certainly the most well-known – though digital currencies have been blossoming at an unprecedented pace recently. There are currently more than 16 million Bitcoins in existence, and it is expected that there will be more than 22 million by 2022. Worldwide acceptance is growing, with over 9,800 businesses registered on the Coinmap website, compared to 2013 when there were only 133 businesses registered.
Apple iPhone X: Could it Drive Consumers to Use Mobile as Their Primary Payment Method?
Apple’s new iPhone X is set to arrive in stores globally this Friday. As with every new iPhone launch, experts have been debating the ins and outs of the Apple X for weeks, while fans are expected to queue overnight to get their hands on one.
Face ID is one of the hallmark features of the new device – the primary way to unlock the new phone is with the face scanner. More importantly, the new iPhone X will use the technology not only to unlock the phone, but also to authorize mobile payments.
The Art of Open Banking, Part 1: Laying Plans
I recently had a great discussion with @digitalbankguru (aka Mark Ranta) and @Lui_Zurawski (aka Lu Zurawski) on what it takes to be ready for the revolution in Open Banking. It was a truly global discussion, with stories from North America, Europe and Asia; the conversation part philosophical treatise and part strategy roadmap. Following is a summary of the first part of our wide-ranging discussion on preparing for the Open Banking era.
How 'Mega Trends' Are Shaping Payments in India
In a previous blog post, I wrote about the impact of demonetization in India and the staggering growth of new digital payment types. Building further on this, I want explore some of the “mega trends” in payments, and how India is embracing the opportunities presented by these trends.
Bringing Home the Payments Bacon (And Other ‘Sizzles’ Such as PSD2, GDPR, AI and Big Data)
Mark, we’ve closed out another hectic Money20/20; my eyes are still dry; my throat is still sore; I still reek of cigarettes; I’ve eaten a lot of bacon on a stick (thanks to Zelle, a great group of people and a great partner)! So for the most part, this year’s event has been another win. And I haven’t even referenced the many terrific sessions during the week (well, I guess I just did).
What Do Open APIs Mean for Banking Business Models? PSD2 Points of View
As the January 2018 deadline creeps closer, PSD2 – and by association instant payments and open banking – is the hot topic in the payments industry. The impact of PSD2 will be felt beyond Europe’s physical borders, as it brings open banking to the fore. As with any global issue, ideas around how best to address the challenges of open banking are fragmented, and opinions differ between retail and corporate banking.